Algorithmic Trading

Lately I have been lazy to write any blog entries but I have been productive with trading, more specifically regarding my development on the journey to a better trader. I met a good old friend who seems to be doing pretty good in trading. He said his strategies are mostly algorithmic which strengthens my interest towards aromatic trading. I have many times thought about back testing my strategies automatically with coding, but did never give a thought that algorithmic trading was ever an option. 

Algorithmic trading is the act of programming a trading system to work on its own. I mostly thought that is what big firms on Wall Street do and that normal commercial traders would never survive in that world. Most people think that an algorithmic trading strategy is also a quantitative strategy, in which case we are talking about high frequency trading. This is a world of ultra fast trading where nano seconds matter and trades are already made 0,00001 seconds after a news event. Obviously this is where commercial traders have no chances to compete. But an algorithmic trading strategy can also be a system that makes for example "buy and hold" long term investment decisions. A strategy that is automated fully or partly can be an algorithmic strategy. I was eager to learn as much as  possible about algorithmic trading and I think these are the pros and cons of it:

An algorithmic trading system:

+ can work on its own 24/5

+ will exclude all negative effects of the human mentality (greed, fear and inaccurateness)

+ will do a 100% what you program it do 

+ will simultaneously monitor as many markets as you want it to follow

- can be difficult or even impossible to program

- can sometimes lead to "black swans" (negative inexplainable surprises)

- can take a lot of time to develop

I first came up with a  fantastic internet site https://www.quantopian.com, This is a free forum and portal for algorithmic traders and I believe its free because succeeding strategies are copied by the site owner so do not code your biggest trading secrets here. The site has a build in python-based terminal for back testing and live trading. It uses python as its coding language which is pretty easy to learn and powerful. I played a little with it but soon realized I would need at least a +30K trading account to trade with this on an intraday basis. I don´t have the money and the will to sacrifice 30K to my first algorithm which may work or not work.

Then I came up with the good old Meta Trader which is offered mostly by forex brokers https://www.metaquotes.net/. The metatrader uses MQL 4& 5 (meta quotes language) as its programming language. The syntax is very similar to C++ which is considered to be a difficult but very powerful language. To me the language seemed first very difficult to understand, but it is getting more clear the more I put time to look into it. So this is where I am right now: I have to master MQL so that I can write my strategy into code.

Intraday News Trading

I usually trade some news events during the week. One of those is the crude inventory release. The number is released every Wednesday at 17:30 (GMT +2) and on US holidays on Thursday at 18:00. This is an exciting news event since it brings a lot of volume into the market. Last Thursday I traded the news only to find myself after a few minutes with a big loss in my account. The news came out as Actual 4.900M Forecast 0.650M Previous -2.976M. That means there is a 7,87 million barrel difference to the previous number. An increase means always more supply and more supply means the price should fall. And so it did for a few minutes. As the first 5 min candle was closed I opened a position at the previous low. Shortly after that the price rapidly increased. I had my stop at 51,64 which is the high of the first candle. The price just kept increasing until my position was closed. Not that I am afraid of losing, but sometimes I have the feeling the market is doing the direct opposite of what it should or at least what I think it should do. I checked that there were no other contradicting news released that could have mixed the sentiments. How on earth did the market analyze the news as bullish for the oil price??!



The price just returned back to its original level like the market would have said "nope you are wrong, I will knock you out!". In my opinion it is not worthy for a single trader like me to enter any trades during the first 5 minute candle: the first 5 minutes tend to be very volatile and entering a trade could be affected by high slippage or an instant stop order. I have also noticed that the market often overreacts and the price will eventually change direction after the first candle like in this case.

Brent Crude Oil

I have been buying crude oil for the last two days. The price has now broken one important level of 51,35. The move was triggered mostly due the inventory report yesterday: A 2,56 million barrel increase was predicted but the actual number came out as a -2,98 million barrel decrease. So that´s a 216% difference and a decrease in supply always works bullish in the demand.

MeetMe Inc. (MEET)

MeetMe, Inc. is a social media technology company that owns and operates the MeetMe mobile applications and meetme.com. The Company is a location-based social network for meeting new people both on the Web and on mobile platforms, including on iPhone, Android, iPad and other tablets that facilitate interactions among users. The Company provides users with access to a menu of resources that promote social interaction, information sharing and other topics of interest. The Company offers online marketing capabilities, which enable marketers to display their advertisements in different formats and in different locations. (google finance)

The stock price is in an accelerating bullish movement well above the 200 day moving average. The price plunged after some director’s offloaded shares in august. This may indicate that the Q3 earnings report will not be as positive as the Q2:

However if the Q3 report is surprisingly positive I am looking forward on buying at 8,20$. 4 analysts have rated the stock as a “buy” and none as “sell” or “underperform”.

Incyte Corporation (INCY)

Incyte Corporation is a biopharmaceutical company. The Company is focused on the discovery, development and commercialization of therapeutics to treat medical needs, primarily in oncology. Forbes listed the company to it´s "Most innovative companies" list. Now the market capitalization is significantly smaller than the other medical giants, but aren´t we looking for growing companies? The company showed this quarter again some really good numbers:

I do not usually follow this kind of patterns, but when the fundamentals and other aspects of my strategy are right, why should I ignore a beautiful trend channel like this. The buy zone starts around 94$ and the first target would be 133$. Of course there is always the chance that the bears might push the stock down so that the channel is broken. Someone might recognize this as a bearish flag.

Update on Sabre Corp. (SABR) 6.9.2016

The stocks price has made a new low and is rising again towards the all-time-high. I am predicting volume increase at levels between 29,66 and 30,60. Buy signal if the price manages to close above 30,60.  

Weekly chart:

Sabre released some solid numbers on the 2nd of August: Quarter over quarter earnings growth 113%, ROE (ttm) 84%, Sales quarter over quarter 19,50%. Despite that the stocks price reacted bearish. Overall the stock is in a bullish cycle.

Daily chart:

Sabre Corporation (SABR)

Sabre is a solution provider in technology for the global travel and tourism industry. The software that the company provides is used by hundreds of airline and hotel companies around the world. Sabre is showing strong earnings, the EPS (quarter over quarter) has grown 85% and annual EPS by 110,40%. Also the sales are up 21%. The ROE is up 93,30% during the trailing twelve months and the stock is also supported by institutions: TBG Group Holdings holds 16,55%, Silver Lake Group 10,83% and Vanguard Group 5,24% etc. The stock is also technically showing a promising pattern (see picture). The stock is recovering  from the previous lows and is near the all-time high about to break through a 1-2-3 pattern. I am excited about the earnings report tomorrow before the market open.